UPI Leading the Boom of Digital Transactions in India
Union Budget 2023-24
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UPI Leading the Boom of Digital Transactions in India

Digital payment systems have entirely revolutionised the finance and banking sector in the past few years. They have made everything safe, efficient, and straightforward from the comfort of homes, whether online shopping, paying bills, consulting a doctor, or ordering medicines. Digital payments have become the new standard, and there is increasing demand for contactless payment methods in every economy. Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI), facilitated by inter-bank peer-to-peer and person-to-merchant transactions, which has achieved tremendous success in India. UPI crossed 5 billion transactions in March, amounting to INR 8.88 trillion, and overall completed 45 billion transactions worth over a trillion dollars in FY 2021-22, showing a two-fold increase since March 2022.

The pandemic has prompted a widespread rise in the adoption of digital payment systems, including UPI. India outpaced the world in 2020 by leading in real-time transactions and was ahead of China by 60 per cent. This is also reflected in the Reserved Bank of India's (RBI) digital payment index (DPI), which highlights an increase in score from 100 in March 2018 to 304 in March 2021, indicating improvement and growth in the area. This can largely be attributed to the increased smartphone penetration and availability of cheap internet data and the work done by the Ministry of Electronics and Information technology (MeitY) in boosting the use of digital payment modes. By undertaking the Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA) and guiding banks and payment service providers, MeitY has supported boosting India's digital economy by spreading awareness in remote areas of the country and increasing security in digital payment practices.

The volume and value of UPI payments have also been growing consistently and have doubled due to its user-friendly and adaptive interface. There is an evident decline in cash usage and increased demand for digital payment methods. This has led to a reduction in cash flow circulation in the Indian economy, helping the government on its agenda for India to become a cashless economy. With the linkage of Quick Response (QR) codes, phone numbers and bank details, UPI has made payments exceedingly convenient and effortless for the users. The seamless operability of UPI across other applications like Paytm, GooglePay and PhonePe, and easy refunds on failed transactions are among other reasons for the increasing reliability of UPI transactions.

Further, Bharat Interface for Money (BHIM) Aadhaar Merchant Incentives scheme, BHIM-UPI Merchant On-Boarding scheme, and Merchant Discount rate (MDR) Reimbursement scheme are some incentives provided by the government for the onboarding sellers on the platform to boost the digital payments platform. UPI is also very advanced and adaptive to new and upcoming technologies. It is assisted by artificial intelligence (AI) for customer assistance, which provides quick resolutions and provides insights over a span of time by studying consumer behaviour and spending needs.

The success of UPI in India is a combined effort of the RBI, NPCI, and various fintech companies. However, this is not true for the UPI story. The government of India believes in the idea of equal accessibility. To achieve this, RBI with NPCI has launched the UPI 123Pay initiative, which provides UPI service in mobile phones to permit transactions without an internet connection by a simple method of calling, choosing, and paying. This will extend the adoption and use of UPI to people who do not have access to smartphones and to regions where internet connectivity is an issue, approximately 400 million people in India. In addition, an on-device wallet called 'UPI-Lite' for feature phones is also in the development stage. The UPI Lite app would allow users to make small transactions in offline mode through their wallets. The app will process credit online and debit offline initially, but the government aims to convert both processes offline with time.

Digitisation in India's finance sector has contributed to significant progress in the digital payments ecosystem. This has substantially decreased the cost-of-service delivery in various industries and increased profitability in other areas. The concerted efforts of the RBI and NPCI have led UPI to cross the $ 1 trillion mark, making it the most preferred payment mode in India, while also setting its targets much higher for the coming FY. This indicates that there is growing acceptance of digital payment infrastructure in India. With the government's support, there is scope for innovation in payment practices.

This has been co-authored by Bhakti Jain and Bhamini Rathore .